Coming at you this week with one more reflection on the Chanel v. What Goes Around Comes Around case – which I will try to keep pretty brief for now. As you likely already know, on Tuesday, a jury in the Southern District of New York sided with Chanel on all four of its causes of action: trademark infringement, false association, and unfair competition based on WGACA’s use of Chanel marks and other brand indicia, as well as hashtags; trademark infringement, false association, and unfair competition based on WGACA’s sale/offering for sale on non-genuine Chanel products; trademark infringement based on WGACA’s sale/offering for sale of counterfeit goods; and false advertising, and awarded Chanel $4 million in statutory damages “for its claim for trademark infringement based on WGACA’s sale or offering for sale of Chanel-branded handbags bearing counterfeit trademarks.”
As for next steps, the parties will present evidence related to “equitable remedies, such as disgorgement and injunctive relief” exclusively to the judge, with Chanel slated to file its brief on the matter within 30 days of the jury verdict.
The immediate aftermath of the trial has brought with it no shortage of commentary about how this will broadly impact the secondary market – with most of the chatter suggesting that the verdict will serve as a significant blow to resellers and their ability to offer up pre-owned goods. I am not sure I buy into the overly pessimistic view because to some extent, this case involved some arguably obvious no-no’s. WGACA was found to be selling bags bearing counterfeit marks while also offering up hundreds of point-of-sale items (think: vanity trays, tissue boxes, etc.) that were meant exclusively for use in Chanel stores and were never authorized for sale (which has been contested by WGACA). It is also not earth-shattering that products not subject to companies’ quality control/assurance methods will be viewed by those companies are not authorized for sale.
Beyond that, though, WGACA was making extensive use of Chanel’s trademarks and other brand indicia to not only promote its sale of Chanel products but maybe more fundamentally, to promote itself.
Both points provide some interesting takeaways …
> In terms of the issue of counterfeit or otherwise infringing bags, the thing that stands out (to me) is the difficult position that resellers are in since no shortage of companies treat their authentication methods/techniques as proprietary. Technological advances, including AI-powered tools, might help on this front, but even still, questions remain about how resellers can authenticate and advertise the authenticity of the pre-owned products they are selling in order to toe the line between fair use of brands’ marks and false association. After all, one of the big issues for Chanel in this case and others like it has been the ability of resellers to make statements/warranties about authenticity of Chanel products. And this is, of course, no small matter for resellers, which rely heavily on their ability to boast that their products are the real thing.
It seems to me that there is a potential competition issue in the making in the event that brands take a really hardline stance to prevent resellers from making bold claims about product authenticity, while simultaneously refusing to engage with them to help ensure that products are, in fact, authentic. (I have dove into this in the past, as this has come up in other cases, as well.)
On this point, it is worth noting that TikTok and LVMH-owned beauty brand Benefit made headlines last month with reports thatLVMH is reportedly in talks to collaborate with TikTok to address concerns about the sale of counterfeits on the video-sharing platform. This – along with other efforts, such as joint initiatives between brands and Amazon, and Kering’s investment in French resale platform Vestiaire, for example – could signal an increased willingness by brand-owners to work with third parties to identify and cut down on the sale of counterfeits.
> One of the other big issues in the case is WGACA’s “excessive” use of Chanel trademarks and branding to effectively promote itself. This is where there are some instances that likely will not prove to be death-knells for other resellers. WGACA’s use of the Chanel trademark in conjunction with its own name in hashtags and its use Chanel-centric marks in discount codes like COCO10, for example, seem to clearly go beyond any necessary use of Chanel marks for the purpose of identification/description of products. At the same time, WGACA putting Chanel imagery and other brand indicia at the forefront of its advertising/marketing materials likely is not necessary – and arguably easily avoidable – when it sells a wide array of coveted brands.
The takeaway here seems to be that even with nominative use firmly in place as a defense (when trademark use is not excessive and crossing into the false association/endorsement territory), resellers will need to be more careful when it comes to their use of third parties’ marks. Resellers almost certainly already aware of the need to not piggyback on luxury brands’ marks but seem to have been playing a bit fast and loose in light of the still-relatively-nascent stage that the luxury resale market is in.
K&L Gates’ Susan Kayser and Terrance Roberts ultimately did a good joint of summing it up the impact of the verdict in a couple of sentences: “Although luxury resellers have the right to resell pre-owned genuine product without permission from the brand owners under the first-sale doctrine, resellers still risk liability if offering for sale non-genuine or counterfeit products, and if using the brand owners’ marks in a misleading way in its marketing that is not fair use. This ruling will likely impact the rigor required for resellers vetting and authentication processes.”
More to come – not just from the second phase of this case but also the Chanel v. The RealReal case, which is still underway and other matters, including the Nike v. StockX case, which also involves issues of authentication warranties in connection with the sale of pre-owned goods.